Economic Growth

July 2018

 

The latest Gross Domestic Product (GDP) figures indicate that the US economy expanded an annualized 4.1 percent on quarter in the second quarter of 2018, below market expectations of 4.4 percent. This rate was the strongest since 2014. There is some doubt that another 4 percent quarterly gain will occur again anytime soon. Most economist expect growth to slow in the second half of the year with a full year growth in GDP at around 3 percent.

Most analyst agree that the recent GDP numbers are positive while focusing on gains in consumer spending, business investment and government spending.

Government spending and investment added 0.37 percentage points to growth, slightly higher than 0.27 percentage points in the first quarter. It increased 2.1 percent, above 1.5 percent in the previous quarter while real consumer spending rebounded, as expected, at a 4.0 percent pace, with gains in durable and nondurable goods as well as services. The consumer is helped by a low unemployment rate, rising disposable income improved consumer confidence. Also, higher home and equity prices contributed to real consumer spending.

Overall, consumer spending, residential investment and government spending all are on a sustainable path to contribute to growth in the second half of this year.

An interesting note highlighted by economist Dean Baker from the Center for Economic and Policy Research,  corporate profits for 2017 is being revised down by 3.0 percent and he states that this maybe an indicator of workers are beginning to “retake” part of the national income share cost given up during the recession.

The likelihood that the Federal Reserve policy makers to raise interest rates at their upcoming meeting is mixed. The GDP report showed that inflation slowed a bit in the second quarter but remains close to the Fed’s 2 percent target.

 

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